UPDATE 3-Toronto stocks battered by falling commodities

TORONTO, July 23 (Reuters) - The Toronto Stock Exchange’s main index tumbled for a second session in a row on Wednesday, knocked 130 points lower as resource issues fell along with commodity prices.

The materials sector led the way down as shares of gold producers were battered by a 3 percent drop in bullion prices while the U.S. dollar rose. Barrick Gold (ABX.TO) was down 7.9 percent.

Oil fell $4 to a six-week low, dragging down the heavyweight energy sector, after a U.S. government report highlighted concerns about softening demand. Canadian Natural Resources (CNQ.TO) dropped 6.3 percent.

Potash Corp of Saskatchewan POT.TO topped the net losers with a drop of 7.1 percent, to C$202.23. Workers at three mines gave the world’s No.1 fertilizer producer notice that they could legally go on strike on Friday afternoon.

The S&P/TSX composite index .GSPTSE closed down 130.53 points, or 0.96 percent, at 13,512.66 with four of its 10 main sectors finishing lower.

The energy and materials sectors were responsible for the lion’s share of the losses, giving up 3.8 percent and 5.6 percent, respectively.

Canadian Natural Resources fell C$5.41 to C$80.28, while Barrick Gold was down C$3.82 at C$44.30.

A 3.4 percent gain by financials cushioned the fall as Canadian banks were lifted by a rally in bank stocks south of the border and by optimism that U.S. lawmakers would approve a rescue plan for mortgage finance giants Fannie Mae FNM.N and Freddie Mac FRE.N.

Canadian Imperial Bank of Commerce (CM.TO) rose C$3.17, or 5.3 percent, to C$63.29, and Bank of Montreal (BMO.TO) was up C$2.52, or 5.3 percent, at C$49.82.

Keith Summers, chief investment officer at Stonegate Private Counsel, said that optimism over U.S. steps to contain the impact of the credit crunch had helped put a floor under the Canadian banking sector.

“Now they’re recovering back to where they should be,” said Summers. “It won’t happen right away, but I think the momentum is favoring financials right now and not favoring commodities.”

The financial group has jumped more than 16 percent over six sessions, helped in part by a handful of stronger-than-expected results of U.S. banks.

Even so, the group has been battered by the fallout from the credit crunch and worries of more losses to come. It remains down nearly 10 percent on the year.

In after-hours trade, shares of Sierra Wireless Inc (SW.TO) (SWIR.O) dropped more than 20 percent after the wireless modem maker warned of “macroeconomic uncertainty” in key markets and an erosion in some of its sales. Its shares dropped to $12.50 in electronic after-hours trading, down $3.57, or 22 percent, from their regular-session close of $16.07 on Nasdaq.